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Economic diversification in Asian LLDCs

Prospects and challenges

This report on Economic Diversification of Asian LLDCs: Challenges and Prospects will address economic diversification and its impact on structural transformation, building productive capacities, job creation and enhancing competitiveness of LLDCs in Asia. The primary objective of the report is to discuss the prospects and challenges for economic diversification in Asian LLDCs. The panel will discuss examples of concrete opportunities for economic diversification in these countries that would contribute to structural transformation, building productive capacities and job creation. The panel will also discuss the challenges posed by high and volatile commodity prices, which create incentives away from diversification. The 12 Asian landlocked developing countries (LLDCs) share the common challenge of remoteness and isolation from international markets, without direct access to trade by sea, which increases substantially their trade costs. Higher costs reduce the competitiveness of the Asian LLDCs and hinder their ability to harness trade to promote their economic growth and structural transformation. They also create incentives to these countries to specialize in high bulk primary commodities with relative inelastic demand to the trade costs.

Patterns of economic diversification

In this section, three empirical patterns associated with diversification are presented: (a) the direct association between diversification and output, both in per capita and total terms; (b) the inverse association between diversification of an economy and the competition faced in exporting its product mix; and (c) path dependency in the process of diversification illustrated by the higher likelihood of particular pairs of products being exported jointly.